By the end of this month, FHFA, charged by statute with a mandate of conserving and preserving the assets of Fannie Mae Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), will have sent $158 billion from the Companies’ treasuries to the government’s Treasury pursuant to the Net Worth Sweep—$130 billion more than Treasury previously would have received under the 10 percent fixed dividend provided in its stock agreements.

In an attempt to evade judicial scrutiny, Treasury and FHFA raise four preliminary, and at times contradictory, objections to Plaintiffs’ APA claims. FHFA argues that Plaintiffs lack Article III standing, but does not challenge Plaintiffs’ prudential standing. Treasury takes the reverse tack, arguing that Plaintiffs lack prudential standing, but not Article III standing. Treasury also claims that the APA claims are barred by a provision of HERA, 12 U.S.C.

§ 4617(b)(2)(A), that permits FHFA to substitute itself for plaintiffs in derivative actions, but FHFA – the only party in a position to raise such an objection – makes no similar argument as to Plaintiffs’ APA claims. The agencies finally both argue that 12 U.S.C. § 4617(f) deprives this Court of jurisdiction to hear claims against Treasury and FHFA, even though that statute says nothing about Treasury and only governs claims against FHFA, and then only if FHFA is acting within its authority as conservator. Each of these objections to judicial review lacks merit.

A. Plaintiffs Have Article III Standing.

Plaintiffs previously explained that they have Article III standing to challenge the Sweep Amendment because the Amendment ensures that Plaintiffs will be unable to recover their liquidation preference and depresses the value of their stock. See APA Br. 21-23.1 Treasury apparently agrees, never questioning Plaintiffs’ Article III standing.

Notwithstanding any other provision of Federal law or the law of any State, and regardless of the method which the Agency determines to utilize with respect to a regulated entity in default or in danger of default, including transactions authorized under subsection (i), this subsection shall govern the rights of the creditors of such regulated entity.

(2) Maximum liability

The maximum liability of the Agency, acting as receiver or in any other capacity, to any person having a claim against the receiver or the regulated entity for which such receiver is appointed shall be not more than the amount that such claimant would have received if the Agency had liquidated the assets and liabilities of the regulated entity without exercising the authority of the Agency under subsection (i).

12 U.S.C. § 4617(e). According to FHFA, if Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are eventually liquidated, this provision limits Plaintiffs’ recovery to what they would have received if Fannie Mae and Freddie Mac had been liquidated in September 2008, and thus it is this statute rather than the Sweep Amendment that has caused Plaintiffs’ injury. See FHFA Reply 17. That is wrong because FHFA has not placed Fannie Mae and Freddie Mac in liquidation, and because, even in liquidation, this section has no bearing at all on Plaintiffs’ liquidation preference. See APA Br. 22-23.

Section 4617(e)(2) only limits the “liability of the Agency” to “not more than the amount that [the claimant] would have received if the Agency had liquidated the assets and liabilities of the regulated entity without exercising the authority of the Agency under subsection (i).”

U.S.C. § 4617(e)(2) (emphases added). Subsection (i) authorizes FHFA “as receiver” to organize a “limited-life regulated entity.” 12 U.S.C. § 4617(i)(1). In other words, Section 4617(e)(2) is meant to limit FHFA’s liability if FHFA, as receiver, exercises its authority to create a limited-life regulated entity. This reading is consistent with Congress’s explanation of a parallel provision applicable to the FDIC: “Current law is clarified with respect to FDIC’s liability in the event it elects to arrange an assisted acquisition or transfer of assets and liabilities to a bridge bank in order to preserve or attempt to preserve the going concern value of an institution.” H.R. Rep. No. 101-222, at 397 (1989). But FHFA has never exercised its authority under subsection (i), nor could it during Fannie Mae and Freddie Mac’s conservatorship, as that power is reserved solely to a receiver.